Aircraft: B737
Phase of flight: Takeoff / Launch
Anomaly: Aircraft Equipment Problem Less Severe; Deviation / Discrepancy - Procedural Published Material / Policy; Ground Event / Encounter Other / Unknown

After push back; while starting second engine; I noticed all of the push crew walking away from the aircraft back to the gate. I did not get a salute; and I could not see anyone carrying the gear pin. I verbalized this to the First Officer directed him to call [Company] Operations and inform them of the situation; and that I needed a salute and a visual of the pin from the push crew. After several minutes someone came back out; retrieved the pin from the floor of the tug and walked toward the aircraft. Once I got a visual; I flashed the nose light and got a salute. Prior to that; we waited. In the meantime; I called for a review of the instrument data and bugs items; but before that was completed; we got the salute; so we continued with the control checks; however; I may have missed the flaps call. Cannot recall; never-the-less; we continued and taxied out as usual; and went through all the checklist items. When it came to flaps; I remember putting my hand on the lever and called 1 green light; but failed to look long enough at the actual lever position or flap indicator and notice the flaps were not in the correct position. Once on the runway and cleared for takeoff; after 40% N1; I pressed the TOGA switch; and immediately heard the configuration warning horn. I retarded the throttles. We both quickly recognized the problem; and the First Officer positioned the flaps to the correct position; all the while; I continued to hold throttles back to Idle until I disengaged the auto throttles. Rather than continuing the takeoff from that point; I elected to taxi forward to the next runway exit and exit the runway. I treated the situation as a rejected take-off below 80 KIAS; all the while informing ZZZ Tower of our intentions. Once clear; we discussed the error; ran a complete before take-off checklist for a second time got ourselves back in the green and were soon back on the runway and cleared for an uneventful takeoff bound for ZZZ1. We simply got distracted; by the non-standard push crew actions consequent delay and didn't trap the error. We moved unexpectedly out of the green. Expectation bias played a hand. The normal sequenced flow got interrupted. I expected that once the ground crew was clear of the aircraft; and I had a salute; I would call for appropriate flaps and control check. Instead; of the usual; we (I) got focused on getting the crew back out to see the pin and a confirmation salute. After I got what I wanted; I failed to initiate a definitive restart and allowed an unequivocal continuation - sort of just picking up where we left off - leading to an error. An abundance of non-standard events happen on the line. We should remind ourselves often that things won't be perfect; regardless of effort; so we must remain vigilant and dedicated to trapping errors as they come. A tool may help. A mindset should be that after any non-standard event occurs...such should cause us to go back to the point just prior to the non-standard event; collect ourselves and start again. However; beyond just saying 'we should' and then forgetting; give it a name like; 'SNAP BACK.' Like a mandatory call out for anyone who observes. The procedure after a 'SNAP BACK CALL' would be to re-accomplish the appropriate check list; no questions asked; just do it! Captain advanced thrust levers and got takeoff configuration warning. Captain immediately brought thrust levers to idle and cleared runway with call to ATC. Set flaps to 1 and completed Takeoff Checklist in its entirety. Proceed back to runway for takeoff with fuel above min takeoff. Human error/distraction. Whenever distraction occurs; redo entire checklist procedure. B737 flight crew reported being distracted; resulting in rejected takeoff since flaps were not configured properly.